A Bright Spot of December's Jobs Report: Wage Growth

Wage growth reached its highest level in seven years. But increases aren't being enjoyed by all segments of the economy.
by | January 6, 2017

One of the often-cited shortcomings of the national economic recovery is that workers aren’t experiencing much wage growth. But the federal Labor Department’s latest jobs report suggests that might finally be changing.  

The report published on Friday estimates that average private-sector hourly earnings climbed 0.4 percent for the month of December -- up 2.9 percent from one year prior. That marks the highest year-over-year wage growth in more than seven years.

Wages started to stagnate during the depths of the recession in 2009. They’ve since shown signs of improvement over the last half of 2016 but are still below pre-recession levels.

The recent uptick in wages, however, hasn’t been enjoyed across all segments of the economy. Education and health services, in particular, have seen average earnings rise just 1.8 percent over the year -- the lowest increase of any sector. Financial services, retail and utilities similarly haven’t fared much better.

By comparison, leisure and hospitality workers experienced an average earnings growth of 4.4 percent in 2016, although part of that is a function of the industry’s pay being so low to begin with. The information sector -- a relatively small segment of the economy that includes software publishing, Internet and communications jobs -- has also benefitted from stronger recent gains.

Economists cited the latest wage growth as evidence that the Federal Reserve should continue raising interest rates this year.

The Labor Department report doesn’t estimate changes in public-sector earnings. But if wage growth persists over the longer term, one can assume that governments, too, will start to reap benefits in the form of higher tax revenue.

In terms of job growth, the Labor Department estimated that the economy added 156,000 jobs last month.

The labor force participation rate, which considers whether Americans are employed or actively looking for work, was 62.7 percent -- the same level as a year ago. The unemployment rate similarly changed less than one-tenth of a percent and is now 4.7 percent.